Bill Gates is likely familiar to most investors, recognized as a billionaire philanthropist and one of the co-founders of Microsoft ( MSFT 0.30% ) .
After leading the tech firm he established for over 25 years, the ex-CEO resigned to concentrate on his philanthropic efforts. As reported by Forbes, Gates has an estimated net worth of $132.6 billion, placing him as the ninth wealthiest individual globally. Despite this, the renowned billionaire has committed to donating “the vast majority of my wealth to help as many people as possible.”
The Bill & Melinda Gates Foundation Trust is the means by which he aims to achieve that objective. According to the Gates Foundation website, “Our mission is to create a world where every person has the opportunity to live a healthy, productive life.” Since it began, the foundation has issued $77.6 billion in grants, tackling some of the most challenging and significant issues. Consequently, the Trust’s investments often fluctuate from one quarter to the next.
Although the Trust still holds shares in over 24 companies, by the end of the second quarter, four stocks made up 83% of its portfolio.
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1. Microsoft: 33 percent
Among the assets in the Gates Trust, Microsoft stands out as the most significant. This is unsurprising, considering that Gates established the foundation using his personal assets. The Trust holds approximately 35 million shares of Microsoft stock, with a value of $14.7 billion.
This isn’t the Microsoft we used to know. The company has broadened its focus beyond just browser and operating system software, with Azure Cloud emerging as the fastest-growing cloud infrastructure provider. It saw a 29% increase compared to the same period last year, surpassing both Amazon Amazon Web Services (AWS) and Alphabet is the cloud service platform offered by Google.
Nevertheless, it was Microsoft’s initial venture into generative AI This aspect is what investors find most thrilling. According to management, Azure’s cloud expansion benefited from “eight points from AI services,” highlighting its potential. Analysts at Evercore ISI suggest that the company’s AI-driven digital assistant, Copilot, along with other AI tools, could bring in an additional $143 billion in revenue by 2027.
The Trust also gains from Microsoft’s quarterly dividend, which the company has been distributing regularly since 2004 and has been raising annually since 2011. Although the current yield of 0.7% may appear minimal, it’s due to the remarkable stock price increase of over 200% in the last five years. Additionally, with a payout ratio below 25%, it’s probable that there will be many more dividend hikes in the future.
2. Berkshire Hathaway: 21 percent
Warren Buffett, another billionaire and the CEO of Berkshire Hathaway is a multinational conglomerate holding company. ( BRK.A 0.94% ) ( BRK.B 0.97% ) , also intends to contribute most of his fortune to charitable causes. He became part of the “Giving Pledge” alongside Gates in 2006 and has contributed about $43 billion to the Trust so far, which includes a $4 billion donation in June. Consequently, the Gates Foundation now possesses nearly 25 million shares of Berkshire Hathaway Class B stock, valued at $11 billion.
Considering Berkshire’s collection of lucrative businesses and thriving stock investments, it’s no wonder that the Trust maintains a substantial amount of stock in its possession. This portfolio offers inherent diversification and is anticipated to generate dividend earnings amounting to billions in the next year. Additionally, Berkshire recently reduced its stock investments and increased its cash reserves to an all-time high. The company is currently holding approximately $277 billion in liquid assets .
Considering the company’s track record of achievement and substantial reserves of cash, it’s no wonder that it remains one of the Trust’s largest investments.
3. Waste Disposal: 16%
Gates has a preference for unexciting businesses that generate consistent, ongoing income, which perfectly describes Handling and Disposal of Waste ( WM -0.07% ) If you’re uncertain, think about this: The Gates Trust holds over 35 million shares in Waste Management, valued at $7.3 billion.
In addition to simply collecting trash, Waste Management operates several reclamation facilities that focus on recovering materials such as glass, paper, metal, and plastics for recycling purposes. The company also runs several landfills where it captures landfill gases to produce electricity and fuel vehicles.
In the second quarter, there was a 5.5% increase in revenue compared to the same period last year, whereas the adjusted operating EBITDA increased 10%.
Let’s keep in mind the dividend. Waste Management has raised its payout for the past 15 years in a row, and it currently offers a yield of 1.43%. With a payout ratio of 46%, there’s still a lot of potential for further increases.
4. Canadian National Railway: 13 percent
Gates and Buffett also have similar views when it comes to their belief in the importance of railroads. Buffett demonstrated this belief when he acquired Burlington Northern Santa Fe in 2009, highlighting that railroads move goods “in a very cost-effective way” and are “extraordinarily environmentally friendly,” emitting significantly fewer pollutants into the air. Gates appears to agree with this perspective, as the Trust owns almost 55 million shares of The National Railway of Canada ( CNI 2.49% ) valued at $6.2 billion.
What makes Canadian National unique is that it is the sole transcontinental railroad in North America, linking the Atlantic and Pacific coasts with the Gulf of Mexico. Addressing Buffett’s observation, railroads cut greenhouse gas emissions by 75%, largely due to their being four times more efficient than long-haul trucks. This efficiency makes railroads a more economical choice. Moreover, the industry has high barriers to entry and a strong competitive advantage, which enhances its attractiveness.
Canadian National has consistently paid dividends, having increased them annually since they began in 1996, and presently offers a yield of 2.1%. With a payout ratio of 38%, there seems to be significant potential for further increases in the future.
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